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Courts and contract enforcement in transition agriculture: theory and evidence from Poland

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  • Beckmann, Volker
  • Boger, Silke

Abstract

The paper investigates theoretically and empirically the role of courts for contract enforcement in transition agriculture. In a survey of 306 Polish hog farmers conducted in 1999, only 38.5% of them reported to believe that they could use courts to enforce contracts with their most important customer. Furthermore, those who believe the legal system could be used would accept significant financial losses before taking action. We develop a theoretical model, based on the costs and benefits of court enforcement, which captures the boundary between contracts to be regarded as "enforceable" and "not-enforceable" and, simultaneously, the threshold of taking legal action. The empirical analysis strongly supports our model: (1) the farmers' responds can be explained by cost-benefit calculations regarding the use of courts, (2) the legal "enforceability" of contracts depends on not only the efficiency of the legal system, but also on the attributes of the transaction, the contracts and the relationship between buyer and seller, and (3) the threshold of taking legal action is significantly influenced by indirect costs of court enforcement, such as the disruption of a valuable relationship, and by the availability of alternative enforcement mechanisms.

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Bibliographic Info

Article provided by Blackwell in its journal Agricultural Economics.

Volume (Year): 31 (2004)
Issue (Month): 2-3 (December)
Pages: 251-263

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Handle: RePEc:eee:agecon:v:31:y:2004:i:2-3:p:251-263

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References

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  1. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo Group Munich.
  2. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
  3. McMillan, John & Woodruff, Christopher, 1998. "Inter-Firm Relationships and Informal Credit in Vietnam," CEPR Discussion Papers 2036, C.E.P.R. Discussion Papers.
  4. Lyons, Bruce R, 1996. "Empirical Relevance of Efficient Contract Theory: Inter-firm Contracts," Oxford Review of Economic Policy, Oxford University Press, vol. 12(4), pages 27-52, Winter.
  5. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  6. Hamish R. Gow & Johan F. M. Swinnen, 2001. "Private Enforcement Capital and Contract Enforcement in Transition Economies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 686-690.
  7. Silke Boger, 2001. "Quality and contractual choice: a transaction cost approach to the polish hog market," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 28(3), pages 241-262, October.
  8. Fafchamps, Marcel, 1996. "The enforcement of commercial contracts in Ghana," World Development, Elsevier, vol. 24(3), pages 427-448, March.
  9. Klein, Benjamin, 1996. "Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships," Economic Inquiry, Western Economic Association International, vol. 34(3), pages 444-63, July.
  10. Simon Johnson & John McMillan, 2002. "Courts and Relational Contracts," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(1), pages 221-277, April.
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  12. Woodruff, Christopher, 1998. "Contract enforcement and trade liberalization in Mexico's footwear industry," World Development, Elsevier, vol. 26(6), pages 979-991, June.
  13. Gow, Hamish R. & Streeter, Deborah H. & Swinnen, Johan F. M., 2000. "How private contract enforcement mechanisms can succeed where public institutions fail: the case of Juhocukor a.s," Agricultural Economics, Blackwell, vol. 23(3), pages 253-265, September.
  14. McMillan, John & Woodruff, Christopher, 1999. "Dispute Prevention without Courts in Vietnam," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 637-58, October.
  15. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  16. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
  17. Kathryn Hendley & Peter Murrell & Randi Ryterman, 1998. "Law, Relationship, and Private Enforcement: Transactional Strategies of Russian Enterprise," William Davidson Institute Working Papers Series 72, William Davidson Institute at the University of Michigan.
  18. Kali, Raja, 1999. "Endogenous Business Networks," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 615-36, October.
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Citations

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Cited by:
  1. Zoltán Bakucs, Lajos & Fertő, Imre & Szabó, Gábor G., 2010. "Contractual relationships in the Hungarian milk sector," IAMO Forum 2010: Institutions in Transition – Challenges for New Modes of Governance 52700, Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
  2. Yu, Xiaohua & Abler, David G. & Zeng, Yinchu, 2009. "Contractual Arrangements of Traders in Chinese Wholesale Markets," 2009 Conference, August 16-22, 2009, Beijing, China 51399, International Association of Agricultural Economists.
  3. Bachev, Hrabrin, 2010. "Study on Agrarian Contracts in Bulgaria," MPRA Paper 22946, University Library of Munich, Germany.
  4. World Bank, 2005. "The Dynamics of Vertical Coordination in Agrifood Chains in Eastern Europe and Central Asia : Implications for Policy and World Bank Operations," World Bank Other Operational Studies 8806, The World Bank.
  5. Romain Ferrali, 2012. "The Maghribi industrialists: contract enforcement in the Moroccan industry, 1956-82," Economic History Working Papers 45680, London School of Economics and Political Science, Department of Economic History.
  6. Yu, Xiaohua & Abler, David G. & Peng, Chao, 2008. "Dancing with the Dragon Heads: Enforcement, Innovations and Efficiency of Contracts between Agricultural Processors and Farmers in China," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6144, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. Bardos, Krisztina & Ferto, Imre, 2006. "The Contract Choice of Retailers in Hungarian Beef Sector," 99th Seminar, February 8-10, 2006, Bonn, Germany 7746, European Association of Agricultural Economists.
  8. Fertő, Imre & Elek, Sándor & Bakucs, Lajos Zoltán & Forgács, Csaba, 2012. "A szerződések teljesülése a magyar élelmiszerláncban
    [Contract fulfilments in Hungarian food chains]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 63-73.
  9. Annen, Kurt, 2013. "Social capital as a substitute for formality: Evidence from Bolivia," European Journal of Political Economy, Elsevier, vol. 31(C), pages 82-92.
  10. Ferto, Imre, 2012. "Contract enforcement in Hungarian agri-food chain: the case of small and medium enterprises," 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK 134956, Agricultural Economics Society.
  11. Guo, Hongdong & Jolly, Robert W., 2008. "Contractual arrangements and enforcement in transition agriculture: Theory and evidence from China," Food Policy, Elsevier, vol. 33(6), pages 570-575, December.
  12. Imre Ferto & Bakucs Lajos Zoltan & Sándor Elek & Csaba Forgacs, 2011. "Contracts in Hungarian Food Chains," MIC 2011: Managing Sustainability? Proceedings of the 12th International Conference, Portorož, 23–26 November 2011 [Selected Papers], University of Primorska, Faculty of Management Koper.

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